John D. Rockefeller famously said that the only thing that gave him pleasure was to see his dividends coming in. The man knew about the amazing power of dividends to build wealth. That's why investors might want to sit up and take notice of the 6% distribution that Buckeye Partners (NYSE:BPL) is paying these days.
Overview of Buckeye Partners
The history of Buckeye goes all the way back to the Standard Oil Company of John D. Rockefeller fame. Originally founded in 1886, Buckeye Pipe Line later became a publicly owned, independent company following the breakup of Standard Oil in 1911. The Buckeye we know today was reorganized into a publicly traded Master Limited Partnership in 1986.
Today, Buckeye owns and operates one of the country's largest petroleum product pipeline networks. In total Buckeye controls 6,000 miles of pipelines, more than 100 petroleum product terminals and over 40 million barrels of petroleum product storage capacity. That's just part of the story.
Reason to buy No. 1: International growth
The most intriguing asset owned by Buckeye is actually located outside our borders. The company's BORCO marine terminal in the Bahamas is the crown jewel of its budding international operations. Given the exciting growth opportunities that lie before this more than century old company, its best days might still be ahead.
Over the past few years, Buckeye has acquired that world class marine terminal in the Bahamas as well as terminals in Puerto Rico and one in St. Lucia that will soon be added to its portfolio. These terminals strategically enable Buckeye to provide multiple solutions to customers across the entire Caribbean. Overall, Buckeye has 41 million barrels of storage capacity in the region with the ability to expand capacity at its BORCO terminal if market conditions permit.
Reason to buy No. 2: Levered to oil
Outside of a natural gas storage facility in California, Buckeye has virtually no exposure to natural gas. Instead, Buckeye is focused on the transportation and storage of oil and refined petroleum products. More importantly, Buckeye is well positioned to benefit from the new flow of crude oil in the Americas.
Its assets are strategically positioned to benefit from the growth of oil production from the Bakken, Utica, and Latin America. In particular, Buckeye is very well positioned in the Chicago and New York markets to benefit from the movement of oil by rail and barge. It's leverage to these key oil markets are the foundation for its very large distribution.
Reason to buy No. 3: Acquisition candidate
Given its oil focused business, Buckeye could eventually become an attractive acquisition candidate to another midstream operator looking to diversify or increase its scale. Kinder Morgan Partners (NYSE:KMP), for example, is one of the largest transporters of refined petroleum products. It has more than 8,000 miles of pipelines and about 50 terminals. That said, Kinder Morgan Partners doesn't have many assets in the Northeast -- and further, the assets it does have in the east would link up well with those owned by Buckeye. That's but one example of a company that might be interested in acquiring Buckeye.
Another example of a company that might one day be interested is a company looking to diversify its asset base. For example, slightly more than half of Enterprise Product Partners (NYSE:EPD) gross-operating margin is produced from its NGL pipeline and services segment. Further, like Kinder Morgan Partners, Enterprise Product Partners would benefit from the scalability of Buckeye's asset footprint in the Northeast. Finally, either company would benefit from its international assets as well as its extensive terminal network along the East Coast.
Buckeye Partners is well positioned both domestically and internationally to benefit from the continued movement of oil-based products. That should enable the company to continue growing its already large 6% yield. Further, the company's well-positioned asset base makes it an intriguing acquisition candidate for a company looking to either diversify or add scale in an important part of the country.
Fool contributor Matt DiLallo owns shares of Enterprise Products Partners L.P.. The Motley Fool recommends Enterprise Products Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.